Two Mentalities Are Fighting for the Soul of the United States and Its Government

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Erik Devereux
October 19, 2018

This is the second of two columns on the future role of the Federal Government in managing the competing demands on public policy from business and labor. The first column explores the origins of a pervasive “Lottery Mentality” among “blue collar” workers in the U.S. that has lead them to support politicians who pursue policies favoring the interests of the wealthy. Those who buy into the Lottery Mentality believe that someday they will “hit it big” and would benefit from the same policies.

Of course, the clear majority of persons who gamble on a better future lose in the face of long odds. If you believe that rationality eventually would stop such gambling, I invite you to visit your local convenience store when the PowerBall payoff climbs above $100 million and talk to the people in line to buy tickets about why they are there.

A fundamental, structural consequence of the support among “blue collar” voters for a public policy agenda that favors the interests of business over labor is that the division of gross business earnings between workers and employers has become extremely skewed to the side of the employers. It is a well-established fact that real wages in the U.S. barely have grown over the past decades while businesses have reaped record profits. Income and wealth inequality did not reach current record levels in the U.S. by accident. Public policies got us into this, and it is the necessary and proper role of the Federal Government to help push back against it.

There is an ongoing debate about how to shift that balance in the division of gross earnings back a bit toward the wages of hourly workers. One perspective within that debate focuses on the Federal and local minimum wages. Proponents of raising the minimum wage to $15/hour have achieve major victories at the local level especially in California and Washington State on the West Coast and in several areas on the East Coast. Opponents of raising the minimum wage or otherwise intervening in labor markets in that manner worry about how employers might invest in new technologies such as robotics that reduce reliance on the human workforce in response. In the short term, raising the minimum wage does not appear to have yielded the huge layoffs predicted by employers when lobbying against the change. The jury is still out on the longer-term outcomes.

Another perspective in the debate was presented recently at the Reinventing Our Communities conference hosted in Baltimore by the Federal Reserve Bank of Philadelphia, the Federal Reserve Bank of Richmond, and the Johns Hopkins University 21st Century Cities Initiative. Speaking in a conference plenary session, Professor David Ellwood of the Harvard Kennedy School eloquently defended the “better jobs” strategy for raising real wages: In this view, the key to advancing the economic well being of workers is to train them up to get jobs that reward relevant skills with higher pay. Critics of this strategy wonder correctly if such “better jobs” will materialize in sufficient numbers especially for those workers currently trapped in the cycle of poverty that accompanies the lowest wage work.

There is another approach that currently is gaining favor around the U.S., most notably in an exciting experiment underway in the City of Stockton, California. Stockton is providing some low wage working families with $500 per month in cash to assist them with living expenses. Here are the features of this approach if adopted nationally:

Governments in general will not interfere much in labor markets when it comes to setting wages. This will avoid many of the unintended consequences of such interference.

Governments will subsidize lower wage workers with no-strings-attached cash payments to close the gap between actual wages and living wages.

Governments will use progressive taxation – taxing the wealthy at higher marginal rates – to raise the revenue necessary to pay for the subsidies.

This approach also avoids interfering in two other markets of note that are notorious for generating unintended consequences: housing and health care. If the wealthy (i.e., employers) wish to avoid high marginal tax rates, they do have the option of raising wages to the living wage level!

While the framework resembles the Universal Basic Income (UBI) proposals that first gained traction in the U.S. in the early 1970s, it is focused solely on those low wage workers who are unable to earn wages that meet the living wage standard at their location. There currently are several excellent sources of regionally adjusted metrics for living wages including the MIT Living Wage Calculator and the United Way’s ALICE Index.

To get this approach widely adopted, it will be necessary to put an end to the Lottery Mentality. “Blue collar” workers in the U.S. must be educated to understand that, as long as they throw in their lot with the wealthy, all they will keep doing is losing in the game of life. The U.S. faces many direct, negative burdens from those ongoing loses including the costs of welfare programs. We need to start pursuing a better strategy.

Author: Erik Devereux has worked for 25 years in the public policy and management field. Erik currently is an independent consultant to nonprofit organizations and to higher education and teaches applied policy analysis at Georgetown University. He has a B.S. from the Massachusetts Institute of Technology (Political Science, 1985) and a Ph.D. from the University of Texas at Austin (Government, 1993). Contact Erik at [email protected].

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